The code should listen for a combination of keypresses and send the appropriate letter to the serial port, for example, pressing buttons 1 &5 would send an "A", buttons 2 & 4 a "B" or whatever. Can anyone help me with the code - should this lookup code take place in the Arduino, or do I have to use another app written in VB or something? My preference is to use the Arduino to process all of the code and then use Serial Keys on XP to pass the characters from the Serial port to Word or whatever.
You possibly actually have another option available to you...
While it's probably more complex, it may be possible to have your device function as an actual PS/2 keyboard or (with--currently--much more complexity) a USB HID keyboard.
I had thought someone had written about implementing a PS/2 keyboard but all I could find was this thread. There is a library to accept input from a PS/2 keyboard.
I'm currently mid-project in trying to get the Arduino to function as a USB HID Keyboard but don't yet have a "plug and play" solution.
So, this answer may not be what you're looking for, but thought I'd point out some further possibilities... 
--Phil.